There's A New Republican Health Care Proposal And It's Actually Not That Bad

Tom Coburn may be retiring from the Senate at the end of the year, but he is giving it his all until the very end. AP On the eve of President Obama's fifth State of the Union, three Republicans senators - Sens. Tom Coburn (Okla.), Richard Burr (R-N.C.) and Orrin Hatch (R-Utah) - have unveiled a new health reform plan to replace Obamacare.

This is the most comprehensive Republican proposal to date that includes features of the president's health care law and centers it around solid conservative ideas.

It focuses on eliminating many of the mandates and requirements in Obamacare while keeping many of its popular features.

Here's a breakdown of what's in it:

So, if the plan doesn't repeal Obamacare entirely, what does it keep?

Not much. The Patient Choice, Affordability, Responsibility, and Empowerment Act ("Patient CARE Act") will keep the provision in Obamacare that allows young adults to stay on their parents' insurance up to age 26. It would also keep the ban on lifetime limits of insurer payouts. Besides that, it would increase the ratio that insurers can vary premiums between the old and young from 3:1 to 5:1, although states would have final say over this.

Most importantly, the Patient CARE Act will continue to provide means-tested assistance to low-income Americans. The proposal would offer tax credits for people up to 300% of the federal poverty line (FPL) ($34,470 in 2013), a bit less than Obamacare which offers subsidies for people up to 400% of FPL. Individuals working for small businesses (less than 100 employees) and those who do not work for a large employer would be eligible for the credit. The tax credits are also age-adjusted and would grow at a rate of the Consumer Price Index plus 1%.

Just about everything else. The individual and employer mandates are gone. The requirement that insurers cover 10 essential health benefits is gone as well. States no longer have to use exchanges, though they can if they wish. Insurers also will no longer be required to cover people with pre-existing conditions.

Wait what?! They can go back to rejecting me if I have a pre-existing condition?

Yes, but only if you have not had continuous coverage in the past. This is key. The proposal requires insurers to offer coverage to anyone with pre-existing conditions as long as they have maintained continuous insurance for at least 18 months. It doesn't matter if they're switching from employer-provide insurance to the individual market or just switching plans in general.

The plan will also revive state high-risk pools that can cover people with pre-existing conditions that insurers won't cover by increasing federal funding for them.

For those who are uninsured when the plan is adopted, there would be a one-time open enrollment period when insurers would not be able to reject any individual for a pre-existing condition

OK that's good at least. I remember that Obamacare included the individual mandate because insurers needed healthy people to enroll in coverage to ensure that they had balanced risk pools. If there is no individual mandate, how will insurers get healthy people to sign up?

There are a couple of features in the plan that make up for the mandate. First, the requirement that individuals maintain continuous coverage if they want to ensure that insurers cannot reject them for having a pre-existing condition provides incentive for them to purchase insurance even when they are healthy.

In addition, the tax credits will also incentivize low-income Americans to enroll in coverage. In some cases, individuals may qualify for tax credits that could fully cover the cost of a plan, but choose not to enroll. Under the Patient CARE plan, the state will auto-enroll these people in that plan for them. They can choose to opt out if they want, but the default option is enrollment. This will help ensure people sign up for coverage as well.

Alright that seems like it could work. What about the Medicaid expansion? What's happening with that?

It's gone as well. Instead, the Patient CARE Act will offer states a per-person allotment of funding for each person enrolled in Medicaid. The goal of this is to incentivize states to find cost-efficient ways to treat their low-income, uninsured population. As Avik Roy notes, it's a milder version of block granting. The plan would also allow Medicaid enrollees to opt out of the program and instead receive the tax credit to purchase private insurance.

How much would all this cost? The tax credits sound expensive.

The plan hasn't been scored yet, but the authors say it is likely to be deficit-neutral over the 10-year budget window. It does so by capping the employer health insurance exclusion at 65% of the average plan's costs. This isn't as ambitious as previous conservative health insurance plans that eliminated the exclusion altogether, but the senators decided that doing so would be too disruptive to the market after they saw the backlash from people whose plans were cancelled due to Obamacare.

Deficit-neutral sounds good. Is there anything else in it?

Yeah. The plan would incentivize states to adopt medical malpractice reform, a popular policy on the right. It also requires insurers and hospitals to be more transparent with their pricing and wants to use targeted reforms to extend eligibility for health savings accounts. Finally, it would allow small businesses to band together to negotiate for health plans, giving them greater purchasing power.

Wow, this does sound like a viable replacement. Can you sum it up for me?

Sure! The Patient CARE Act will likely cover fewer people than Obamacare but continues to provide protections for people with pre-existing conditions. It isn't a major change from the president's health reform law. Individuals would likely have access to a wider variety plans, but also will be at risk of purchasing one that covers few benefits. It will likely cost less, but still is deficit neutral. It's unclear how it would affect premiums.